(July 11 – 12:00 ET) – Trimark Financial Corp. has written to its shareholders in an attempt to clarify how its takeover by Amvescap plc will be treated under proposed new tax rules.
The firm says it has received a number of inquiries concerning the possible impact on its merger of draft income tax legislation released by the Minister of Finance on June 22. The new rules will apply to “foreign investment entities”, subject to certain exemptions.
The new rules will generally require a securityholder to adopt a mark-to-market accounting approach, and to include in reported income any change in the value of the holding during the year (even if the holding is not sold in the year).
Alternatively, the income accrual method may be available, too, but this would involve recalculating the foreign investment entity’s income in accordance with Canadian income tax principles and would require a holder to include in income its share of this allocable income (whether or not cash distributions are received by the holder in the year).
It is intended that the new rules will initially take effect for a securityholder’s 2001 taxation year.
Trimark says the draft legislation appears to be targeted primarily at the taxation of holdings in foreign “passive investment entities”, but it notes that the legal and investment communities are discussing whether the draft legislation applies to a broader range of securities. It says that if Amvescap is treated as a foreign investment entity, the Amvescap securities (including ordinary shares, exchangeable shares, debentures and replacement options) may be subject to the new rules.
Currently, Trimark believes that Amvescap will not be subject to the new rules. Although the rules require an annual examination of each non-Canadian holding to determine whether the new rules should apply. Trimark says it doesn’t foresee changes that will put it under the new regime.
-IE Staff